The Pound pushed towards a fresh 3-month high above 1.63 against the U.S Dollar on Thursday, as concerns over the U.S fiscal cliff escalates in the build up to the January announcement. The UK currency did, however, plunge to a 2-month low versus the Euro under 1.2250, before recovering some ground by the close of the European trading session. The minutes from the Bank of England’s last policy meeting were largely in line with market expectations, as the MPC voted unanimously for interest rates to be unchanged at 0.5%, while there was an 8-1 vote in favour of leaving quantitative easing measures on hold.

Policy maker David Miles again dissented and voted for a further £25 billion increase in bond purchases, but that was also in line with expectations that the Pound was unmoved. The BoE was also generally downbeat over the outlook for the economy and warned of an increase in inflation, which may prevent policy makers from easing policy too much over the coming months. The governor Mervyn King has previously warned of the possibility of a ‘triple-dip’ in the fourth quarter, as the key sectors of the economy continue to struggle and that has prompted speculation that the MPC could embark on further asset purchases in the new year.

It could also be argued that a weaker Pound would be beneficial in aiding the economic recovery and this is likely to be an important issue over the coming year. The Pound has remained unchanged this morning, after a report from the Office of National Statistics showed that UK retail sales remained unchanged in November, despite expectations of a seasonal improvement from the 0.7% decline in October. The UK currency has made good strides this week against the higher-yielding currencies like the Australian and New Zealand Dollars, while Sterling also maintains a three month high versus the U.S Dollar. However, the downside risks to the Pound are becoming increasingly evident and there is a very good chance that we could see renewed weakness during the first quarter of 2013.

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Adam Solomon

Adam has almost a decade of experience working in one of the UK’s leading currency brokers and has been...